Today’s Fed Temporary Open Market Operations (TOMO) Repos, October 15, 2019, Signal a Crisis

In today’s Fed Temporary Open Market Operations, the dealers took $20 billion in 14 day term repos and $67.6 billion in overnight repos for a total take of $87.7 billion. $61.5 billion expired. Therefore, the net increase was $26.2 billion in Fed repos outstanding, bringing the total to $190.3 billion.

Fed Temporary Open Market Operations - Repos Outstanding

Click here for the latest TOMO-POMO report from Wednesday, October 16. Next update will be later today.

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These Temporary Open Market Operations Repos Are Just a Bridge Loan

And, oh! By the way, these Temporary Open Market Operations are just the appetizer. On top of that, the Fed also bought outright (POMO) $1.1 billion in MBS and $1.6 billion in Treasury coupons today. So it added a total of $28.9 billion in cash to the banking system today.

Then on Wednesday it starts its outright T-bill purchases with a buy of $7.5 billion. Consequently, it will be interesting to see if the TOMO repos outstanding come down by a like amount.

And Wall Street and the Fed tell us there’s no crisis? Come on. Get real! They don’t pump $200 billion in cash into the market in a month, with a promise to do more for months to come, unless there’s a financial crisis.

The Economy Is Doing What It’s Been Doing, So There Must Be a Crisis Somewhere

We throw these numbers around like they’re nothing. But really, the fact that the Fed has had to pump nearly $200 billion in cash into the banking system in just one month, and promise to add another $480 billion or more in outright purchases of Treasury securities over the next 6 months is mind boggling.

Why else would they do this? The US economy is trundling along at a slow but steady growth rate. Why the urgency? Because the banking system, and the Primary Dealer system in particular, are on the verge of collapse, groaning  under the weight of the unprecedented, and ever growing mountain of US Treasury securities, they are being forced to absorb and hold.

Virtually all of those bonds were bought on margin, with repo loans from other banks. Every tick lower of bond prices puts more and more of these holdings under water. The banks and dealers don’t have the collateral to cover the margin. The Fed has no choice. It must keep them on life support, or the system will collapse.

More on this story here.

We knew that something like this was coming. To follow my in depth reporting, analysis, and forecasts on this story, including what to expect next, see Liquidity Trader.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish, and was lead analyst for Sure Money Investor. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today. 

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